Alice Who? Over Half the U.S. Utility Patents Issued Annually are Software Related!

By Raymond Millien
May 21, 2017

I am continually amazed that for over a decade the legal, technical and academic communities have debated the issue of software patent eligibility. Many trees have been killed in the form of articles, blogs and law review articles devoted to both sides of the debate, not to mention the lobbying dollars spent. Further, the Supreme Court’s most recent ruling on the issue, Alice Corp. v. CLS Bank has left the IP bar without a clear, reliable test to determine when exactly a software (or computer-implemented) claim is patentable versus being simply an abstract idea “free to all men and reserved exclusively to none.”

This has left us with a myriad of USPTO Section 101 guidelines, flowcharts, presentation slides, reference sheets, and case law charts interpreting Alice and its progeny of district court and Federal Circuit cases—the totality of which merely confuse and distract the USPTO, courts, and practitioners from focusing properly on Sections 102 (novelty) and 103 (obviousness). The net effects are increased cost, lower patent quality, and in some instances even the denial of patent protection for software inventions.

I have always argued that software patent eligibility is a must in a country where patent rights are guaranteed by the Constitution. That is, all fields of innovation should be treated equally under the law such that one field of endeavor (e.g., pharmaceuticals or electronics) is not deemed more “patent worthy” than other fields (i.e., computer science and information technology). This is especially true when one considers how important software is to the U.S. economy as evidenced by the following facts and figures:

  • The U.S. software market was valued at approx. $200B in 2016. [CompTIA, IT Industry Outlook 2017]
  • A PriceWaterhouseCoopers report pegs the cumulative value of technology-related M&A activity for 2016 at US$323.5B, with software representing the largest portion of that total volume with $88.5B worth of deals, representing over 40% of the deal volume. [PwC, US Technology Deals Insights Year-end 2016 (2017)]
  • In 2016, over 5.2M U.S. workers were employed in core IT occupations (g., software developers, database administrators, web developers, systems analysts, user support specialists, Information Security Analysts, and the like). Id.
  • PayScale – the online salary, benefits, and compensation information company – reports that Computer Science & Engineering college major ranks in the top five for salary potential, with a median mid-career (e., 10+ years of experience) salary of $116,000. [PayScale, 2016-107 College Salary Report]
  • In 2015, there were 59,281 Bachelor’s degrees, 31,474 Master’s degrees, and 1,998 Ph.D.’s awarded in the U.S. in computer and information sciences.  [Institute of Education Sciences at U.S. Department of Education, National Center of Educational Statistics, Table 325.35]
  • “Employment of software developers is projected to grow 17 percent from 2014 to 2024, much faster than the average for all occupations. … The main reason for the rapid growth in both applications developers and systems developers is a large increase in the demand for computer software.” [U.S. Bureau of Labor Statistics, Occupational Outlook Handbook, Software Developers]

Add to the above the fact that we are at the beginning of the Fourth Industrial Revolution – the age of the Internet of Things (IoT) – where many companies are undergoing “digital transformations.” This involves not only implementing digital processes (i.e., replacing labor with software) but also using software to analyze the big data sets collected from hardware (and people) equipped with sensors that are wirelessly connected to the Internet.

In sum, a substantial amount of U.S. commerce is software-dependent and the associated innovation in the field – when novel and non-obvious – deserves stable and predictable patent law protection! As further evidence that software must be patent eligible – on both policy and legal grounds – patent activity at the USPTO tells a compelling story. Using data from the USPTO, I sought to determine what percentage of USPTO issued utility patents are “software related.” To define what patents are “software related,” I utilized the same methodology employed by the United States Government Accountability Office in a 2013 IP litigation report to Congress. That report relied on certain classes and subclasses of applications most likely to include patents with software-related claims as selected by expert advisors to the USPTO. With respect to the selection of classes and subclasses that comprise “software patents,” these experts acknowledged:

“[I]dentifying patents with software elements can be a tricky business. … While this definition will certainly be both over-inclusive and under-inclusive, the method is calibrated to help us identify classes in which patents with software claims are most likely to be found. As shorthand, we refer to those applications or patents which falling to these classes and subclasses as “software” applications or patents, and to those which fall outside as “non-software,” with the understanding that this nomenclature is one of convenience, and will not be accurate in all cases.”

After settling on this methodology, I enlisted the assistance of patent analysis firm GreyB Services to tabulate the issuance rates of those classes and subclasses [Id. at n.7] for the last quarter-century to produce the following two figures:

While I will leave to the reader the bulk of the interpretation of the data – including year-over-year trend observations – some conclusions stand out:

  • Since 2012 – the same year Mayo Collaborative Svcs. v. Prometheus Labs was decided by the U.S. Supreme Court, and upon which the Alice two-step framework rests – over half of the annual total of issued U.S. utility patents have been software related.
  • The percentage of software-related issued U.S. utility patents has averaged an annual growth rate of 2.98% over the past quarter-century.
  • The largest single-year percentage increase of software-related U.S. utility patents issued occurred from 1997 to 1998 – the same year State Street Bank & Trust Co. v. Signature Fin. Group was decided by the Federal Circuit.
  • Since a year after the dot-com bubble bursting (e., 2001) to 2016, the percentage of software-related U.S. utility patents issued has grown 18%.

Thus, I think that Congress, the courts, and the USPTO must end their assault on Section 101 and software patents. The latter two must return to a proper focus on Sections 102 and 103. Further, the USPTO must continue to prioritize improving patent quality and pendency times. Anything less is simply counterproductive to the digital age in which we live.

This article reflects my current personal views and should not be necessarily attributed to my current or former employers, or their respective clients or customers.

 

The Author

Raymond Millien

Raymond Millien is a prominent intellectual property attorney who holds a BS from Columbia University and a JD from The George Washington University School of Law.

In 2009, 2011, 2013 and 2015, Mr. Millien was recognized as one of the “World’s 300 Leading IP Strategists” by IAM Magazine.

Mr. Millien is currently Associate General Counsel for IP & Engineering for GE Oil & Gas.

Previously, Mr. Millien was General Counsel of Ocean Tomo, LLC, and Vice President and IP Counsel at The American Express Company. Mr. Millien has also practiced law in the Washington, DC offices of PCT Law Group, PLLC, DLA Piper US LLP and Sterne, Kessler, Goldstein & Fox PLLC.

He may be reached at raymond.millien@ge.com.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 12 Comments comments. Join the discussion.

  1. Anon May 21, 2017 10:44 am

    Let me be the first to point out that the oft-critized State Street decision is a peak.

    In plain English, after that point, the “software” indicator went down – this is counter factual to the (propaganda?) laments as to how “bad” State Street was because it “opened up the flood gates” of so called “junk patents.”

    The trend is simply in the opposite direction, albeit surely aided by the Dot Com bubble burst (the trend is still downward before the burst…

    It appears that much like “Tr011s” and the infamous “Jefferson letter,” when things are viewed critically, a different story emerges than the one that fits a certain desired narrative.

  2. Paul Cole May 21, 2017 11:55 am

    Gene has in the past done sterling work identifying groups within the USPTO that are patent-hostile and have a zero or near zero allowance rate.

    It is important that the USPTO should evolve clear, straightforward and simple guidelines for eligibility in this area which both examiners and the public can follow. Maverick court decisions such as the recent Federal Circuit decision in Recognicorp (precedental or unprecedented for disregard of the underlying technical facts?) do not help in the necessary settling-down process.

  3. Night Writer May 21, 2017 1:00 pm

    Lee just said everything is fine and none of what you said is real. She said the PTAB is a great thing and very fair.

  4. step back May 21, 2017 6:31 pm

    Thus, I think that Congress, the courts, and the USPTO must end their assault on Section 101 and software patents.

    What is this “must” business?
    The Golden Age of Islamic Science/Math ended 1000 years ago (see YouTube below)
    We (usa usa) too can enter a pax scientifica era. We are well on our way.

    https://www.youtube.com/watch?v=SNdFMTDCfy8

  5. Techcrunched May 21, 2017 6:56 pm

    “just how dominant Google has become, in so many different domains … and, especially, how its only real competition comes from the four other tech behemoths who dominate our industry’s landscape . . . practically a software oligopoly”
    https://techcrunch.com/2017/05/21/google-in-google-out/

    Thank you SCOTUS, AIA, and PTAB!
    The Software Oligopoly

  6. Night Writer May 21, 2017 9:31 pm

    @4 step back. That is a depressing thought step back, but that youtube video drives home that it is a distinct possibility. He said that there was not before and has not been since such a golden age for science, and it was by the Arabs. And, now they contribute almost nothing to the advancement of science. Sobering indeed.

  7. Anon May 21, 2017 9:58 pm

    Haven’t checked out the video yet, but is it the one that discusses how religious extremism choked out any room for objective scientific thought?

    I remember reading a dissertation on that topic last year – fascinating historical coverage and indeed a warning to those that feel that (that cannot happen here).

    Sadly, all I have to do is look around even within the history of patent law in this nation and see that all too familiar “those who do not learn from history are bound to repeat it” indicators.

    We live in an age that despises critical thinking and kowtows to reflecting as much as possible those things that hearken to predisposed philosophies that run against innovation (Philosophies from the Right – as in those that are already established AND from the Left – those opposed to property in any regard – which may have their differences, both gladly attempt to denigrate the innovative and especially the disruptively innovative).

  8. Rupert Anderson May 22, 2017 8:01 am

    “I have always argued that software patent eligibility is a must in a country where patent rights are guaranteed by the Constitution.”

    The Constitution merely grants Congress the power “to promote the Progress of Science and useful Arts,” etc., it doesn’t guarantee to authors and inventors “the exclusive Right to their respective Writings and Discoveries.”

    Congress could choose to do nothing.

  9. step back May 22, 2017 11:25 am

    What is happening now in the USA is of course not identical to what happened in the Middle Ages in the so-called Caliphate. There is debate on what actually happened (i.e. who really invented Al-gebra, etc.).

    But putting that aside there is no guarantee that the pendulum will swing back and America will be “great” again.

    It could be that we are entering a new 1000 year span of Dark Ages in which knowledge and belief in science is eschewed; in which a political/religious extremist group takes control and dictates how the next generation perceives inventors, invention and the rights to be given to them who aspire to create.

    There is little doubt that the current pack of Supreme “minds” on our SCOTUS believe in the corpocracy, namely that the too-big to-not-be-the-best collective and not the individual tinkerer is the entity responsible for “true” innovation in this country, for the something “significantly more” needed to advance the progress of science and the useful arts in this, the indisputably greatest nation in the Grand Guarded Galaxy. And thus any claim by a small, NPE is clearly fraudulent, “directed to” ineligible matter, the work of the devil and against the pure wills of Mother Nature and her supreme laws.

  10. step back May 22, 2017 11:30 am

    p.s. Supreme Court has just ruled against the “trolls” in the TC Heartland case

    https://www.bloomberg.com/politics/articles/2017-05-22/u-s-supreme-court-puts-new-curbs-on-locations-of-patent-suits

  11. angry dude May 22, 2017 12:58 pm

    step back @9

    scotus just drove the last nail in the coffin of us patent system

    now it’s only to the morgue

  12. Gene Quinn May 22, 2017 3:43 pm

    Rupert-

    You are correct. Congress could choose to do nothing. But Congress has not chosen to do nothing, they have chosen to do something.

    A persuasive argument could be made (and I will soon make it I think) that the entire U.S. patent system is unconstitutional. If Congress chooses to exercise its power granted under the U.S. Constitution then the rights granted to inventors must be exclusive rights. The way the patent system has evolved through Congressional action and Supreme Court decisions has made the patent bundle of rights anything but exclusive. Therefore, the patent system as applied is unconstitutional.

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